The sharing economy continues to provide an opportunity for many Australians to make money from their property.
However, it is a must that you know the relevant tax policies surrounding owning a short-term rental is subject to relevant tax policies in Australia.
Your Investment Property reached out to H&R Block director of tax communication Mark Chapman to know about the things Airbnb hosts should know about short-term rental taxes.
How are Airbnb hosts taxed?
The income you get from listing and renting out your property through Airbnb will be assessable, given that the listing is public. Mr Chapman said Airbnb hosts are typically subject to the same tax rules as any other landlord.
“Principally, you need to be aware that any income derived from rent will be assessable income and must be disclosed in your tax return, in the rental section. You can, however, claim deductions for any costs associated with your Airbnb income,” he said.
What are the tax deductions Airbnb hosts can claim?
Airbnb hosts are eligible for the same tax deductions that other landlords can claim.
All expenses involved in running the property will be deductible. However, when you rent out part of the property you are living in, there is some degree of apportionment needed.
Expenses that are directly associated with the rented area can be deducted in full but those that are related to the host’s private area only cannot be deducted.
Some examples of expenses that may be deductible in full include:
- Depreciation of furniture used in the rented room (such as beds, desks, and drawers)
- Commercial cleaning of the rented area
- Repairs and maintenance
- Food, such as breakfast provisions, made available to the guest
- Professional photography for the listing
- Service fees and commissions charged by Airbnb.
Some expenses that relate to the entire property can be apportioned to cover the areas listed under Airbnb. The apportionment is usually based on the floor area used for renting compared to the total floor area of the property. Example of these expenses include mortgage interest, rent, council rates, utilities, and insurance.
Meanwhile, there are expenses that relate to shared areas that can be apportioned based on access.
“If the host and the landlord both have equal access to, say, the lounge and the kitchen, you can deduct 50% of these expenses,” Mr Chapman said.
The example of the expenses that relate to shared areas only include:
- Depreciation on furniture and appliances located in shared areas such as sofas, TVs, kitchen equipment.
- Internet, phone, and cable TV costs
“One final thing to note in relation to expenses where you rent out part of the property you live in is that they are only deductible where an area of the property is actually rented out,” Mr Chapman said.
“That differs slightly to the situation where you are renting out the whole property, where you can claim deductions for the period the property is genuinely available for rent, rather than simply the time it’s actually rented.”
Are there separate rules for hosts running several rental properties on Airbnb?
What happens to tax obligations if a host has several rental properties listed on Airbnb? Will it be considered as business?
Mr Chapman said if an individual owns several properties, the ATO is very firm that they will be regarded as rental properties, not a business.
However, some of the factors that the commissioner may consider include:
- the total number of residential properties that are rented out
- the average number of hours per week spent actively engaged in managing the rental properties
- the skill and expertise exercised in undertaking these activities, and
- whether professional records are kept and maintained in a business-like manner.
“However, crucially, in a tax ruling covering this matter, the ATO says that ‘the receipt of income by an individual from the letting of property to a tenant, or multiple tenants, will not typically amount to the carrying on of a business as such activities are generally considered a form of investment rather than a business’,” Mr Chapman said.
“The ATO does, however, concede that this doesn’t include the carrying on of a business of renting properties by a company.”
This means that if you intend to list several rental properties, it can be worthwhile acquiring and running the properties through a company because it will be treated as a business, giving access to tax breaks like temporary full expensing or the immediate deduction against profit for capital assets like furniture, carpet, electrical appliances and kitchen equipment that is available for assets purchased and delivered by 30 June 2023.
What are the rules on GST for Airbnb listings?
Airbnb hosts are not liable for good and services tax (GST), as it doesn't apply to residential rents.
This also means that you can't claim GST credits for associated costs. This is the case even if your turnover exceeds the GST threshold of $75,000.
What are some of the tax issues Airbnb hosts must know?
Mr Chapman said one issue Airbnb hosts must be aware of is the potential for capital gains tax (CGT) to apply.
“If you own an investment property, you’ll pay CGT when you dispose of it based on the profit you make on sale — this is, in very simple terms, the difference between the amount you sold it for and the amount you paid to buy it,” he said.
“With property prices having risen rapidly in recent years, it’s easy to make substantial profits on sale and equally easy to forget that the taxman will want a slice of those profits.”
It might be tricky to calculate capital gains if you rent out part of your property through Airbnb and many hosts are unaware of this implication.
“Given the potentially long-time lag between starting to rent out the property and ultimately selling it, CGT can be a costly trap for those who haven’t factored it into their cost-benefit analysis when they first decided to make part of the property available for rent,” he said.
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